London office lettings see a surge in 2021

With all the headlines about working from home, you’d be forgiven for thinking that demand for office lets would be at an all-time low, especially in London. However, the city appears to be bucking the trend and while footfall on the capital’s streets certainly seems to be lighter than in previous years, businesses still see London commercial property as desirable.

Recent assessments of the capital’s commercial property market have seen a positivity permeating every aspect of commercial lettings, with expenditure of nearly £3billion over the last quarter. However, it’s smaller spaces that are at a premium, as businesses re-evaluate their working practices. Remote working has meant that large, expensive-to-run offices may not be viable for businesses anymore, and in fact, may represent a serious drain on profits. The alternative is smaller, better quality working spaces that are more economical to maintain. This fits in with the move towards flexible working, hot-desking, and remote working. It may not suit the coffee shops that rely on the London workforce to keep them going, but this shift in focus certainly seems to suit both workers and their bosses.

In Q3 of 2021, property agent JLL reported that around £1.5billion was spent on commercial property rents in the City, with a further £1.4billion in the West End. This represents a considerable increase from the same period a year earlier when Lockdown 1 had sent waves of uncertainty through the commercial sector. It was also more than the total spent in Q3 of 2019 (pre-Pandemic), when London businesses were concerned about the Brexit effect.

Big players

The increase in London commercial property interest hasn’t just been driven by small companies looking to ‘downsize’ their operations and reduce their overheads. Larger property deals have also pumped in billions into the London economy. With big hitters like Derwent London buying up major locations such as 250 Euston Road, there’s no sign that investor nervousness has spilled over into the end of 2021. Analysts watching what the major investors are doing believe that savvy commercial property buyers recognise the shift in working practices, and are confident that providing thousands of businesses with smaller, lower-rent options is the way forward.

Getting back to work

While the Omicron variant may have put the brakes on a full-scale return to the workplace temporarily, there is no doubt that both workers and business owners are eager to get people back in the office again. The difference now compared to pre-pandemic times is that they’re also aware that there is a greater need for flexibility to ensure businesses can keep operating efficiently. So those modern, high-tech and high-quality letting options are far more attractive, especially if they put businesses right in the heart of thriving areas such as the City or the West End.

Post-Brexit positivity

The other driving factor for investors is that London is being seen increasingly as a strong location for overseas investors. The impetus to provide commercial lettings to businesses has been driven by a far more positive post-Brexit feeling. Trade deals are being struck, and the financial sector appears to have resisted the urge to up sticks and head across to Europe. The boom in the technology and media sectors is drawing in a whole new generation of businesses, with an explosion of start-ups and new ventures – all of whom need commercial lets in London to operate.

It’s no wonder, then, that investors are confident that commercial property in London represents a buoyant and potentially lucrative marketplace with high demand guaranteed for at least the foreseeable future. With a busy final quarter on the cards, it looks like commercial lets in London will have a very strong finish to 2021, and even healthier prospects for 2022. 

Robert Rosenberg, Partner at OGR Stock Denton LLP, said: “It appears that, despite everything that has happened in the last 2 years with working from home, tenants have finally concluded that a Central London office brings in talent together from all parts of London giving their business more dynamism.  London and New York have long been places where talented people meet and people are taking up office space quickly.

There are still some good deals for tenants out there but they are fading quickly and Landlords are becoming more bullish.”

If you would like to talk in confidence to a Commercial Property expert, please email or phone 020 8349 0321.

Ban On Commercial Lease Evictions Extended Until March 2022

The Government has announced that the moratorium on commercial lease evictions has been extended until March 2022.  The decision has resulted in considerable controversy, with those in the arts, hospitality, and events sectors welcoming the news, and property companies furious that their legal rights are being further curtailed.

James Raynor, chief executive of the British and Irish arm of Grosvenor Property Group, told the media:

“I find it astonishing that one whole industry is being targeted by government intervention in this way and being deprived of their rights under the law. Owners and occupiers clearly need to work together in sensible partnership. I don’t see this helping, sadly.”

Melanie Leech, head of the British Property Federation, also condemned the move, telling City AM:

“The government has failed to recognise that commercial property owners are essential to the health of our town centres.”

“Another blanket extension to the moratoriums will provide further opportunity for those well-capitalised businesses who can afford to pay rent, but are refusing to do so, to continue their abuse of government and property owners’ support and will cast a long shadow over investment to build back better.”

It has been estimated that firms in retail and hospitality already owe £5bn in unpaid rent.

Full re-opening delayed

The announcement comes on top of the government’s decision to delay the final step in re-opening Britain following the Coronavirus pandemic lockdown measures that have been in place in some form since March 2020.  Prime Minister, Boris Johnson has delayed the dispensing of masks, social distancing, and limits on numbers allowed to attend sporting events, theatres, and cinemas will remain in place until 19 July 2021.  Nightclubs will also remain shut and the work from home edict will continue.  However, the rules on the number of guests allowed at weddings have been relaxed albeit with several restrictions such as facemasks to be worn indoors and table service only for food and drinks at hospitality venues.

The four-week delay to the end of lockdown measures will put even further pressure on the hospitality, cultural, and tourism sectors.  It is hoped that the extension on Commercial Lease Evictions will allow tenants time to re-establish their business and rebuild cashflow so they can pay off rent arrears and other debts whilst continuing to trade.

Landlord concerns on Commercial Leases 

Although the extension of the ban on commercial lease evictions provides relief to tenants for unpaid commercial rent, landlords argue that they have been expected to act as a bank to ensure the economy keeps functioning.  There is also the knock-on effect on pension funds which are heavily invested in the commercial property sector.

Landlords are also expected to make allowances for the ringfenced rent arrears when businesses were forced to close completely during lockdowns and ‘share the pain’ with tenants.  This has resulted in landlords writing off millions of pounds in debt.

The other concern landlords have is that large, profitable companies have been refusing to pay rent despite being allowed to trade through the pandemic.  Furthermore, many large companies are using CVAs to reduce their commercial property liabilities through closing stores, writing off arrears, and demanding rent be reduced in low-profit locations.  However, this month landlords won a rare victory concerning CVA’s when the High Court ruled in Carraway Guildford (Nominee A) Ltd and others v Regis UK Ltd and others (2021) that Regis Hairdressing Group’s CVA was for the benefit of its company shareholders, finance creditors, and trade suppliers at the expense of the company’s landlords.  Regis was proposing that rents would be reduced by between 25% and 75%, and arrears reduced to just 7% of their value.  Meanwhile, a long list of ‘critical creditors’ including shareholders and International Beauty LTD (which is also a shareholder) were left entirely unaffected by the CVA.  Mr Justice Zacaroli ordered the CVA to be revoked.

How a Commercial Property Solicitor can help commercial landlords and tenants

The continuing economic effects of the biggest pandemic in a century continues to be felt by everyone. What is essential for both landlords and tenants is that they are aware of their legal rights and have professional support to ensure their business interests are protected.

To make an appointment to discuss any aspect of commercial property law please email us or phone 020 8349 0321.

Impact of Coronavirus and the Restrictions on UK Property Sector

Following the latest set of coronavirus restrictions in the UK, the housing market will remain open. However, the outlook for the property sector is looking increasingly uncertain. In this post, we look at how the Coronavirus epidemic is impacting the market from the perspective of homebuyers and sellers, as well as those in the real estate business.

Why has the property market been doing so well since the first lockdown?

The swift actions taken by the government earlier this year, in the forms of mortgage payment holidays and the furlough scheme, meant; that despite the recession, the property market has been able to keep moving forwards. This is why when we would usually expect to see a dip in house prices during a recession (being driven by people who are forced to sell as they can no longer afford it due to job loss, for instance); we have instead experienced a market that is being driven by people who are motivated to move, and who can afford to do so. In previous recessions, where no government support was offered, this resulted in people being forced into a financially challenging situation where they needed to move home.

When the housing market was forced to close down earlier this year, property website Zoopla reported that an estimated 375k property sales worth approximately £82 billion were placed on hold. When the market re-opened after the first lockdown, the property market was flooded on a large scale.

Buyers were typically looking for country locations and more space, and due to new home working arrangements, they were able to look for properties more rurally and not necessarily be tied into needing a property near a place of work. At this point, it seemed quite clear that it was a sellers’ market.  Add to this, the news of the stamp duty holiday which saw the nil-band raised from £125k to £500k, and it’s easy to see why, by August, house sales hit a record milestone; with Rightmove reporting that a 10-year high had been achieved with the number of properties selling within 7-days of being listed. 

UK House Price Outlook

Although it’s now expected there will not be any immediate drops in UK house prices, the economic impact of the secondary lockdown could have implications that surface further down the line. In October, it was widely reported that annual house price growth had reached a five-year high of 5.8%. However, there seems to be a growing consensus that this growth will not continue and that we should expect to see only minor price falls in the market next year.

The forecasts for UK house prices have varied a lot throughout the Coronavirus epidemic.

Deutsche Bank predicted drops as high as 23pts, while Zoopla and Savills remained more optimistic after the surge and predicts the year will end more positive, up 4% overall.

Ultimately, both the buying power and mortgage availability are all determined by the state of the economy.  For those looking at borrowing money for a mortgage, forecasts suggest that the Bank of England will not look to raise the base rate any time soon.

After the furlough support scheme comes to an end, followed swiftly by the end of the stamp duty holiday in March, all eyes will be on the state of the economy and its recovery. As this period is also thought to be the time when unemployment levels in the UK will peak, the potential for price falls will depend on how serious the damage to the economy is, and indeed, how much time it takes for unemployment levels to fall. If unemployment levels become too high, this could have a direct impact on property prices, and more people could be forced to sell their properties. Any further restrictions on lending could also reduce the prospects for first-time buyers as well.

The Impact of Coronavirus on the UK Property Sector

As we’ve already mentioned, the UK property markets are open for business. While Wales did face a two-week circuit breaker close down during the final part of October and early November, they are now fully operational once more.

Overall, the property market is showing great levels of resilience during lockdown number two. Property valuations are up by 38% over the same period, and as expected, viewings have fallen by around 15%. Interestingly, property exchanges have risen by approximately 11%, reaching another all-time high.

Although some estate agency owners feel sellers and buyers are potentially delaying decisions until after lockdown two is complete, there are others who report they’ve seen an increase in their property business revenues compared to the same period last year.

Outside of the control of UK property is the looming potential for a no-deal Brexit and the race to find a vaccine or treatment for COVID-19. Both of these events will impact the property market in one way or another. However, for now, those in the business of trying to forecast what will happen in the market seem to confer that following a busy summer period and the release of pent-up demand following the easing of the first set of lockdown restrictions in the UK, there is enough momentum to keep the market moving forwards.

If you have any questions about your contractual obligations or would like help with any property issue, our commercial property solicitors at North London firm OGR Stock Denton can give you the guidance needed to know exactly where you stand.